Irish and Portuguese debt has suffered the biggest declines this month among the world's government bonds. Ireland has dropped 5.3 percent since the Oct. 29 EU summit and Portuguese bonds have shed 4.2 percent.

Portuguese Finance Minister Fernando Teixeira dos Santos urged the EU yesterday to clarify how the so-called crisis mechanism will operate.

EU leaders plan to map out by December how a permanent bailout facility might work, and also study how to treat private bondholders and whether to involve the International Monetary Fund. The new system would kick in when temporary measures, set up this year to rescue Greece and protect the euro, expire in 2013.

"We have to make an appeal at the European level for the European institutions to rapidly, with the greatest possible urgency, clarify the terms in which this mechanism will function," Teixeira dos Santos told reporters in Lisbon.

Lagarde cited several ways in which investors would share the losses in a bond scheduling with taxpayers.

"I'm not specially focused on haircuts," she said. "We can insist on having in any issuance and in any agreements a collective action clause under which any lender agrees that if something goes wrong, the lender will actually participate in the plan that will solve the difficulty, in the same way that you can have rescheduling over time."

Eoin Treacy's view Selling the Greek bailout to German voters was no easy task. They quite rightly expressed antipathy towards the moral hazard associated with bailing out a country that had lied about its fiscal condition and then paid investment banks to paper over the cracks. One can't question the logic of "why should we pay for other's mistakes?" However, the fact is that when such a huge sum is owed, the problem is equally that of the debtor and the creditor.

On the debtor side, Irish and Portuguese bond spreads have widened out considerably over the last few weeks as investors expressed doubts about the ability of these countries to push through fiscal adjustments. On the creditor side, investors are beginning to revise their opinions of German and French banks holding peripheral Eurozone debt. Following the German and French governments' recent insistence that creditors will have to share the burden of future bailouts; these banks could be left on the hook for any haircut that ensues in the event of a bailout.

The Euro Stoxx Bank Index remains in a medium-term downtrend, with a well defined progression of lower rally highs over the last year. A sustained move above 200 would be required to question potential for continued lower to lateral ranging.

The Euro Trade Weighted Index has broken downwards from the short-term range above 130. A clear upward dynamic would be required to signal a failed downside break and question potential for a further retracement of recent gains.